If last week the mood was “panicked and bewildered” this week feels significantly calmer and a bit more positive.
Like I said last week – moods change frequently on FI. We never really want to overreact to them but rather stick to our own assessment of the fundamentals in the market rather than worrying too much about what other people think.
As things stand this feels like the first phase of a recovery. But it is still a nervous market and today I’m going to talk about what we are seeing on the market now and what I think happens next if this continues.
Market Analysis
We’re seeing some decent price rises this week. And not just closing spreads but actual Blue Button price rises – something which has become rare in recent weeks and months.
The first sign of a recovery though is not Blue Button price rises – it’s spreads closing up and the Red Button price rising.
People will attack those low bids first – everyone wants a deal. Most will not be paying Blue Button price if they think they can get a cheap bid matched.
You’ll only really want to pay Blue Button when you are desperate to sign up a player that you think is extremely popular and might rocket in value very soon.
The problem with this is what I ended last week’s article with. If the first sign of a recovery is spreads closing – that isn’t very visible unless you look. The FI interface doesn’t provide this information easily and I think that’s a significant shortfall.
In FI’s Friday night message they have announced they will be taking steps to make trading more visible though – and this should help. For example the one about making the “volume” visible is very helpul (how much was actually traded – a measure of liquidity and activity).
If people can see other people trading – they are much more likely to follow suit.
As it stands – what people are used to seeing as their “cue” that everything is right in the world again is Blue Button price rises that appear in the 24h rises list. If they don’t see those – they think everything is doomed.
This is not the case though – traders would improve their game if they stopped obsessing over the 24h rises list – it’s always been a grossly misleading metric that gives you a very skewed idea of who is currently performing the best.
Increasingly, traders will want to focus on how much the spreads are closing which is much more important right now. It’s also much easier to make a profit from a closing spread than a blue button price rise in the current circumstances.
For example – with a player who is listed at £1.50 Blue Button, if I’m picking him up for £1 on a bid – then he won’t need to do a great deal to get that spread closing up much closer to £1.50. That’s a big profit.
In the current market however – if I have a £1.50 player with a tight spread, perhaps £1.40 Blue Button, my player is going to have to do something extremely special to close that small spread further and then start getting a Blue Button price rise.
Because in order to do that, he’ll have to show so much strength that people have to have him right this minute, in preference to all of the other, probably equally good, players who are available on cheap bids.
The takeaway – when selecting players to buy – do not obsess on the players getting blue button rises. Look instead for high quality players who are still on low bids.
If someone is waiting for a Blue Button price rise to tell them if their player is doing well or not – I’d go as far as to say they are just doing it all wrong.
It’s nice to see some rises. And it can tell us some interesting things I’ll come onto in a minute. But always maintain focus on your own valuation of the player rather than being a slave to what other people are thinking.
It may well be that players getting Blue Button rises are becoming overhyped or are much poorer value than other players who may be far better quality and better value – but people just haven’t worked it out yet.
Where we have scouted out a high quality player though – the chances are that player will demonstrate their strength over time and people will work it out.
Let’s not confuse “currently popular” with “quality and value” particularly when deciding who we should be buying right now.
I mention this because what we are seeing on the market is something I call clustering.
It happens most when people are nervous and fearful. Those who are feeling “bullish” and happy to buy are generally not going to be targetting obscure reserve team players who might make it one day. They’ll tend to be going for popular players who have tight spreads.
This is why in recent weeks I’ve suggested being a little bit less “hipster” in our selections and instead focusing on value first 11 players, more akin to the “Core” type in Key Strategy.
In hard times – people reach for that “comfort blanket” more than ever. They want to know that other traders are coming with them – and so will want to follow that blue button rise or want to see big social media pushes for people to buy that player.
It’s the herd mentality in action. And the more fearful people are the more they want to cluster up.
Where this falls down is that the general judgement out there of who has real quality or not is poor and twisted by social media.
On it’s own, being currently popular with a tight spread at this moment is no comfort at all. Especially in this new Matching Engine system – a player can have one single misfortune and crash in price in moments. No more slow ratcheting down of a price with time to sell back to FI for a minimal loss.
And think of this – the more popular the player the more public and obvious their misfortune is going to be. How many times have we seen that recently? Messi. Couldn’t have been more popular one day. Slammed the next when his transfer falls over. Same for Sancho.
By contrast – if I was keen on a player in pre-season but I’m starting to wobble in Scouting after a few average performances… far fewer people are going to notice that straight away. I’m more likely to have a little time to jump ship before too much damage is done.
We must avoid this clustering mentality.
However – of course we want reassurance. It’s still a choppy and nervous market.
We want our comfort blanket. But the smart traders comfort blanket is made of different stuff.
Popularity comes and goes but dividend winners will rarely go out of fashion.
Look at someone like Kramaric. He had a little bad luck in early 2020, could have won but didn’t. Didn’t get going until the final day of the season. Endured months of unpopularity as nobody wanted a 29 year old in the middle of a coronavirus crisis. But then – the matches come and he shows his quality and recovers.
Even when bad luck hits a quality player – he’s forced people back to him with sheer ability.
If we compare that to something like Tammy Abraham, previously one of the most popular players around (and one of the weakest). He was nearly £4 and now £1.11 to £1.47.
And how is he ever pulling people back? He never had anything outside of the hype – he was doomed to fail when he started hitting an insane price – and once that hype has worn off he has nothing underneath it.
There are many players like this now sitting in the top 50 and even in the top 10.
With Abraham – in the old system it took nearly a full year for that price to slowly crumble. In the new system? That can happen in a day.
Forget popularity as a comfort blanket. It isn’t one. Only quality is. They need real dividend potential and concrete reasons to hold them. That reason can even be something relatively soft like a transfer rumour – provided that transfer window is some way off and it’s extremely unlikely that rumour is shut down anytime soon.
I am not saying only ever buy established, high quality players. That’s far too restrictive. But where we are taking risks we need a value price to match. It’s why I’d buy Sancho for the future hype for £7 in Jan/Feb 2020 but wouldn’t have touched him anywhere near £12+, particularly during the actual transfer window when things can actually get decided.
Or why Asensio is a great pick because even though he has barriers to overcome he’s got high potential and a bargain price. Or why you can punt on Timothy Weah at Lille because again whilst he’s not established he has potential and a rock bottom price tag that makes the risk of him not establishing worthwhile.
Anchors and Peaks
In a situation like this, where as things stand a recovery seems to be underway and the gloomy mood is slowly lifting – we can expect this clustering behaviour into the most obvious and popular players.
These will be recent winners, players who are generally considered “bulletproof” (often wrongly).
They can be expected to rise and this is what we are seeing.
But if that continues, give it a week or so, and they’ll start to look quite poor value compared to what else is on offer.
That’s when people start casting nets a little wider outside of the immediately obvious. So if you have some players that aren’t currently “hot” but you know they have been well regarded in the past – you can expect them to get picked up if the recovery gains pace.
For example, if a player is widely known to be decent i.e they already have plenty of big scores and dividend wins on their CV and nothing has obviously changed for them then they would likely get some kind of natural recovery.
This “natural” bounce back should particularly happen for players who had a “peak” price well in excess of what they are now. I see a lot of talk about this at the moment on social media. It’s the latest buzz word. It’s not wrong… but the best deceptions often contain a grain of truth and we want to be careful with this.
if a player used to be £3 and they are now just £2 – it is very human to think that looks cheap. If the same player used to be £1 and they are now £2 – we’d say they look expensive. Same player though, only our perception changed.
This is called “price anchoring”. Basic example – if I wanted to sell you my house and it was really worth £200k I’d try and start the bidding at £230k. That would set the tone of the negotiation and if the buyer wasn’t particularly savvy he may end up bidding £220k – thinking he’s knocked me down by £10k.
By starting the bidding at £230k I’ve anchored him and he will work down from there. We can’t help doing this. Even if we are aware someone is trying to anchor us, we’ll still do it. It’s just a human thing. We can overcome it but we’ll have to try really hard.
What he should actually do is say “We all know this type of house sells on average for £200k. Forget £230k that is not a relevant number – say that again and I’ll walk. My offer is £190k because the average price is £200k and the basement has damp that will cost me £10k to fix”.
Think of how this applies to FI trading.
If I see a players price is £2 – the fact that it used to be £3 is completely irrelevant when it comes to judging their actual value. This is where it’s important to have at least a reasonable idea of the “True Value” on the Members Dashboard – the actual value is a function of their likely return in dividends and nothing else.
I need to be aware of this anchoring trick so that I don’t get anchored on £3 and think “Ah and he’s £2 now, must be value!”.
He might be worth £3, but that’s for me to judge based on my assessment of his ability.
In many, many cases, players on FI have dropped deservedly for entirely sensible reasons. They are not, in anyway whatsoever, “owed” a return to their previous high.
We have to be aware of this lazy thinking and try to make sure we aren’t being exploited by it. Typically – this “but look at their peak price!” argument is used by people trying to tempt people back into their players who have dropped heavily.
However – that is not to say that “anchoring” and peak prices are not relevant. People can’t help doing it, and even if we are aware of the concept, we’ll still be affected by it to some extent.
This might be one of the things I consider when thinking about “market value” also on the Dashboard – basically how much people are likely to be willing to pay (which is frequently different from what a player is really worth!).
It’s definitely a positive if a player is well below his old peak price, as that becomes an obvious “anchor”. People will probably consider them cheap whilst they remain under it – and therefore think they are getting a good deal. It makes them more likely to buy.
However – the key takeaway is this – it’s that underlying real quality and true value that is going to be the best indicator of whether we are getting a good deal or not.
The price anchor from the previous high is secondary and absolutely not a reason to buy in itself. A player needs a reason why he deserves to return to his previous high and go beyond it. In many cases, some players do not deserve to return to their previous highs – particularly some of the really popular ones who have seen sharp drops. This is just like in the Kramaric/Abraham example above.
So, if I think a player is both under his true value, and under his previous high price anchor – that’s a really strong indicator I am onto a winner. This is the ideal scenario to be in.
If I think a player is over his true value, but under his previous high price anchor… that’s something to think very carefully about.
That’s a trade I’d only go into when I was convinced that enough hype was ahead that I could get away with straying far from true value. This is perfectly fine to do – provided you keep in mind what the true value really is and don’t stick around too long and be too greedy.
In a trade like that, we know we are profiting from the over optimism of others – and so can’t afford to be over optimistic ourselves. The first warning sign would be if we started genuinely believing in the hype of an untested player to meet a sky high valuation.
We want to be long gone before people have the chance to realise that player isn’t all he is cracked up to be. And we can’t do that if we’ve also started believing the myth – we’ll end up hanging in too long.
In that case the anchor might be useful – because we aren’t really holding this player in hope of on pitch success – we could pick a sell point 5% to 10% below that previous high (to get in ahead of anyone being greedy and holding out for the exact previous high).
Final Thought
It’s still a nervous market. But the mood feels a lot better already than it did just a week ago. The market is more stable. Spreads are starting to close. We’re seeing some Blue Button price rises which help bring confidence.
And, the calendar looks favourable to us. There are so many matches on the way once the international break is over, more than any season ever, and those fat dividends dropping relentlessly into people’s balances is what I think the market needs more than anything.
I said this last week too and I really think that you can rely on people to be greedy. When they see those enormous dividends dropping people are just going to want in on it. There is no way on earth this kind of slam dunk value is just left sitting there without people coming in for it.
And, we’ll see some bonus cash dropping in on the 16th too from Part 1 of the bonus. We may see late buying before that Part 1 deadline on the 15th. We may see withdrawals the day after although Part 2 of the bonus might dampen that down, and it could be mitigated further by people spending bonus cash on the 16th.
Something I’ve spoken about for years now is how eventually FI will mature, traders will get better and be forced to move away from chasing hype and more onto substance and dividends.
It’s probably already the second biggest myth peddled on FI that the best profits are in hype – they never have been anyway. It just looks that way if you take social media too seriously.
We have been seeing that change very gradually but the Matching Engine puts turbo boosters under FI’s development. Lots of people have been burned in these crashes, particularly at the hype end of the market under the old belief that “youth is safe” (which is the biggest myth on FI – far from it).
Old habits die hard and this type of trading isn’t going away soon. But I think more and more people are realising that they need to follow less and think more.
I think we’ll be playing in a much more mature market this time next year because the Matching Engine makes the market a tougher and more competitive place. Tougher conditions will force people to get better.
Aside from the risk involved in trading on hype when FI aren’t bailing out awful decisions anymore – the incentive for playing FI the “way it’s meant to be played” i.e for the pursuit of dividends is much stronger.
Dividends are double the frickin’ size compared to last season, often with lower prices too, and I think with all the negativity it hasn’t quite got through to traders how much value is just sitting there. But it will.
This should be another reason we see a refocusing of the market onto actual winners rather than the garbage. But it will be a gradual shift – these bad habits are very ingrained and it will take more mistakes and more pain before many realise they need to adapt.
And indeed, some people will be incapable. They will wipe themselves out and end up leaving FI.
For those who can adapt, or ideally, have been establishing good habits the whole time… I think there is more opportunity for profits than ever. I certainly cannot remember a time when genuine “true value” was so obvious on the market.
One new thing we saw last Friday was the update from FI on product development. This seemed to go down very well on social media – with lots of previously angry people looking happy FI had acknowledged that the implementation of Order Books had not met expectations and it hadn’t gone as smoothly as they had hoped.
I didn’t get much out of this statement myself – possibly because I wasn’t angry in the first place.
But I think this kind of honesty from FI does seem to help and it is part of what has helped turn the mood somewhat.
There seems to be a significant population who think that Order Books were sprung on them and “changed the nature of the bet” etc. I mean. If you keep up to date you’ll know this has been in the works for years and was always the plan.
But as a casual trader? It could easily slip under the radar and this is probably what happened – people don’t like to be surprised.
You can cast blame wherever you want here. It’s on us as traders really to understand what we are putting money into.
And FI could probably have done more here too. This comes from implementing it even sooner than they thought – they took that opportunity when Instant Sell was switched off due to coronavirus to make the change they were making later anyway.
Time will tell whether that was genius or reckless. But thinking about the alternative… if they hadn’t done it then they’d be doing it now… and we might be sat here thinking “ok what happens when they introduce Order Books mid-season”.
Overall, I am probably relieved that all of this chaos is out of the way and we can at least get on with a full season now knowing the basis on which we trade on.
All the practical steps they are listing in this communication, better visibility of trading volume, more information on dividend history etc (Including the new FI Data Centre which is simple so far but gives a slick way to see some key information previously unavailable outside of third party sites), more accurate portfolio value calculations… Depth of Market…more Liquidity Providers…a new Media monitor… NASDAQ on the way.
It’s all good. On paper.
But really, what I think we just need more than anything is a period where nothing happens except football. We don’t want any more changes that will get in the way or cause confusion – so hopefully these tweaks just kind of blend into the background. They aren’t “the thing” that is going to get the market bouncing.
Fortunately, such a period of football is on the way. Just looking at Manchester City’s calendar… starting on the 17th October this weekend… they are playing FIVE games before the end of the month including 2 Champions League ties.
Those new doubled dividends are going to rain down and I think that more than anything is what is going to get people feeling good again.
And as we’ve seen already – it’s going to be the consistent winners that come out on top. The more match days we see the more Scouting pays off as the quality shines and the overpriced hype gets exposed.
Bring it on.